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The most common misconception about Revenue Growth Management (RGM) is that it is something new - it is not. In reality, FMCG companies have been practicing the pillars of RGM, such as brand portfolio pricing, price pack architecture, mix management, promotion management and trade terms management, for as long as they've been doing business. Whilst the practices have been around for many years, the pressures facing manufacturers today have forced them to recognise that getting these levers right is essential to continue driving revenue growth. Here we outline some of the most common misconceptions and aim to ‘bust the myths’ around the discipline of RGM:
Misconception 1: RGM is a cost cutting, financially driven exercise
Many think that RGM's key focus is cutting costs in the business, whether it be in day to day operations, or on the production line, but that’s not its main objective. The main objective is to generate value through the various RGM pillars:
Pricing: At a local level, understanding the brand strength and pricing elasticity of products to inform pricing
Trade terms: Creating a trade terms policy that ensures investments have measurable conditions attached and that encourages brand building/ revenue generating behaviours in retail customers
PPA & Mix: Ensuring mix of products meet consumers’ needs in the right channels and designing an optimised pack/price strategy
Promotions: Understanding the ROI of promotional mechanics and the right cadence of promotions to create win-win plans with customers
Misconception 2: RGM is an internally focused exercise
Teams that have well established RGM capabilities and tools have the ability to generate powerful insights that provide great value to their customers. Commercial leaders and account managers should be sharing this information with their customers in order to drive more collaborative conversations and negotiations. Many retail buyers do not have the time or resources to deeply evaluate their key brands, so they rely on suppliers to give them a steer to maximise category performance. Analysis of how changes to pricing, promotions and mix will affect customer performance as well as supplier performance is key, as it allows suppliers to build win-win strategies and effectively negotiate changes.
Misconception 3: RGM sits separately from other functions
People often assume that RGM sits on its own as a specialist function, far away from other teams such as marketing, finance, category management or sales. Though RGM is a separate function in a lot of big brands, many businesses are just beginning to invest in separate RGM resource - the key is to recognise the importance of having a clear focus on optimising the pillars, whether the responsibility sits with a separate team, individuals or cross functionally. In businesses that do have RGM as a separate function, their teams usually consist of a combination of individuals with backgrounds in Sales or Finance and the relative placement and reporting line of RGM teams in the organisation varies greatly depending on the business and industry nature - most typically, revenue management reports into sales or finance.
Misconception 4: RGM is only a business function
Over recent years, businesses have become increasingly complex and effective revenue growth strategies are more important than ever. If it were only the dedicated RGM teams practicing these strategies, businesses would still risk losing money, time and time again. With this in mind, successful companies have recognised the importance of building a revenue management mindset across the business and spreading the knowledge and understanding to wider teams. A holistic approach to building capability can greatly boost the bottom line and help to increase ROI as everyone, from an account manager to a marketer, understands how they can play a role in increasing profitability for the business.
There are many misconceptions when it comes to the discipline of revenue growth management. In order for businesses to succeed, it is important to overcome them and build knowledge before implementing new initiatives and embedding new RGM tools.
Acumen are a revenue management consultancy and SaaS provider, helping consumer products companies make smarter, more profitable decisions through a combination of pricing, promotions, and mix management optimisation. Speak to one of our consultants here to find out how we can help your business make more profitable decisions.